RECKONING - The Association of Foreign Investors in Real ...
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A REAL ESTATE
RECKONING By Gunnar Branson
AFIRE
4 AFIRE
In his famous poem “The Second Coming,” composed as the world faced
the Great Influenza Pandemic of 1918, William Butler Yeats wrote:
Brecht: “Weil die Dinge sind, wie sie
TURNING AND TURNING sind, werden die Dinge nicht so bleiben
wie sie sind” (Because things are the
IN THE WIDENING GYRE way they are, things will not stay the
THE FALCON CANNOT
way they are).
HEAR THE FALCONER; All levels of government and society
THINGS FALL APART; need to learn and acknowledge how
current practices stand in the way of true
THE CENTRE CANNOT HOLD1 equity. Real estate has to do so as well.
Intentionally or not, our industry has
played a part in systemic racism. Most
egregiously, and rightfully criticized
THOSE WORDS ARE ONCE AGAIN apt in the by many, there are outlier examples in
A
summer of COVID-19. Governments, economies, and the present day of commercial property
owners intentionally excluding minority
regular people are struggling to hold things together
tenants. And though institutional
as the assumptions and structures they relied on six real estate is usually more careful and
months ago are falling apart. informed, no organization is without
bias—but it may be less obvious.
mid the pandemic, systemic When problems are this big, the fi rst
The diversity of employees and leaders
inequity and injustice are now in high instinct is to avoid them, which is
within real estate fi rms has been an
relief and can no longer be ignored completely understandable but not wise.
issue focused on by many organizations
or put aside, especially as those less Fortunately, leaders in real estate are
for some time now, but there is a long
fortunate endure the worst impacts accustomed to large, complicated, and
way to go before the industry truly
of this crisis. The Black Lives Matter uncertain problems that can take many
reflects the diversity of the overall
protests in the US, provoked in part by years of trial, error, and humility to
population. Meanwhile, real estate
yet another incident of police brutality, solve. No one has all the answers,
lending and development has quietly
has been a wake-up call characterized no one is without flaws in their thinking,
supported the same tenets of inequity
by strong language, painful stories, and and no one succeeds without listening
that lead to precisely the exclusivity
uncomfortable truths. and learning. Real estate has asked this
and lack of diversity they otherwise
question many times before: is it possible
Everyone now is paying attention. denounce. Lending practices described
to support a more sustainable and
Difficult and sensitive conversations by sociologist John McKnight in the
profitable future for everyone?
across the membership of AFIRE have 1960’s as redlining—official or not—
returned again and again to the need for continue to deny minorities the same
YES, IT IS.
better understanding of this complicated access to mortgages for homes even
issue. There is no easy way to talk about But fi rst, some uncomfortable truths today. Inequitable development practices
it—true emotional maturity, patience, must be faced: Racism is a very real ranging from the construction of transit
and humility are required. The problems and pernicious aspect of the US and corridors to gentrified displacement
addressed by the protestors call for much other countries around the world. There of urban minority populations, can
more than another corporate diversity are both conscious and unconscious reinforce racial barriers even when they
initiative. They ask for meaningful obstacles to equity and inclusion are not intended to do so. Racial deed
change while empathetic and supportive built into institutional environments, restrictions and covenants were common
people everywhere ask, “what can practices, and policies. Everyone, no practices well into the second half of the
we do?” It is a very difficult question matter their politics, level of success, twentieth century.
to answer. skin color, or social status, struggles
with some level of unconscious bias and
fears. This is a deep-rooted problem that
will take a significant amount of time,
listening, reflection, and methodical
work by individuals and institutions to
solve. On this point, it is inspiring to
consider the words of playwright Bertolt
SUMMIT • SUMMER 2020 5
T ODAY, the US is becoming more diverse, but
slowly, and too many neighborhoods are still segregated.
According to Maria Krysan and Kyle Crowder in
their book, Cycle of Segregation, “segregation by
HENNEPIN COUNTY,
MINNEAPOLIS, MN
race has become self-perpetuating, driving systems
of economic stratification, shaping neighborhood
perceptions, circumscribing social networks and systems
of neighborhood knowledge by race and ethnicity,
and creating patterns of mobility and immobility that
differ sharply across racial and ethnic groups.”2 The
divisiveness of US politics is a very tangible symptom of
a society where location, socio-economic status, beliefs,
and racial categories are inextricably linked. In the early
1900’s, the term melting pot was popularized to describe
the powerful fusion of cultures, ethnicities, and origins
HARRIS COUNTY,
of the US population. Where people live and work HOUSTON, TX
today is keeping the US melting pot from working
the way it should.
These and other practices are part of a status quo that
real estate needs to understand, acknowledge, and
ultimately change.
Most institutional investors do not wish to exclude or
divide anyone, especially as they invest pension money
and the savings of ordinary people from around the
world—and have an implicit duty to invest for that
diverse constituency. They have a particular fiduciary
imperative to invest for the long term and therefore to
understand, acknowledge, and act in a way that supports
a more stable and just environment for the long-term
RACIAL
success of investments as well as the users of real estate.
After a historically long economic recovery following
GEOGRAPHY
the Great Financial Crisis, investors have complained of
a limited amount of attractive investment opportunities.
Of course, most prefer to focus on real estate that has
IN US CITIES
financially secure and established tenancy in the best
neighborhoods, and usually define those properties as
“core” investments. Due to economic disparity, most
of the non-White users of real estate end up in “non-
core” buildings. Implicit in a core investment strategy Visualizing demographic data from the most recent US census
is the idea that underdeveloped neighborhoods are not (2010) creates a stark image of “unofficial” segregation and the
as attractive. Some investors, however, have already result of inherited, racially-motivated, legacy policy decisions
discovered that this is not necessarily true. in some of the most populous US counties. (Maps and data
THE FORMER basketball star-turned-real estate courtesy of the University of Cincinnati Space Informatics Lab.)
investor Earvin “Magic” Johnson found outstanding
returns in areas that have been historically overlooked.
According to Johnson, “When you think about African
Americans now—over $1 trillion spending power—
Latinos, over $1 trillion spending power, and moving
even higher—there was nobody really building businesses
and going after their disposable income.”3
6 AFIRE
DENVER COUNTY,
DENVER, CO S eeing this same “hidden” value, there
are a few that are focused on investing in overlooked
communities, including real estate developers and
investor groups such as Direct Invest Development,
Avanath Capital Management, Abode Communities, and
others. They are attracting institutional capital to their
community real estate approaches valuing communities
that have been overlooked. It can be done, it should
be done, and it is in the best interests of institutional
capital’s constituents to get it done.
As big and as uncomfortable as the issue of racial
equity is, institutional investors are particularly well-
equipped to examine practices and lead change. Over
the last 20 years, this industry began to face one of the
most complicated and existential threats to the social,
economic, and environmental order: global climate
change. Real estate became a significant leader with
COOK COUNTY, new sustainability practices, ESG investing metrics, and
CHICAGO, IL strategies. Unimaginable changes in the way the world
constructs and manages buildings have become standard,
because institutional capital decided that changes needed
to be made. Of course, achieving true sustainability is
something that will take a significant number of years to
accomplish, and real estate is still early in the process—
but as a group, institutional investors have examined
the problem, acknowledged their part in it, and have
begun to act towards a sustainable future, even as other
industries have struggled to keep up.
The same thing can be done with equity, inclusion, and
diversity. This is hard, this is uncomfortable, this is
big and complex, but it is an essential issue to address.
There is an opportunity for our industry to lead, if we
listen, honestly face the problems, and act with humility.
Official census classification of race/ethnicity has evolved over On this point, American writer and civil rights thought
the past century. Because the data on this page is extracted leader James Baldwin said it best: “Not everything that
for a decade-by-decade comparison of demographic changes, is faced can be changed, but nothing can be changed
the maps draw on the five primary race/ethnicity categories until it is faced.”
recognized in the US census through 2010: Non-Hispanic Whites,
Non-Hispanic Blacks, Non-Hispanic Asians (including also Notes
American Indians), Non-Hispanic Others, and Hispanic/Latino 1
illiam Butler Yeats, The Collected Poems of W. B. Yeats, Edited by
W
Richard J. Finneran. New York: Macmillan, 1983.
origin population.
2
aria Krysan and Kyle Crowder, Cycle of Segregation: Social
M
Processes and Residential Stratification, New York: Russell Sage
For further exploration and visualization of demographic and Foundation, 2017.
population patterns in the US, visit the University of Cincinnati 3
athleen Elkins, “How Magic Johnson Convinced Howard Schultz
K
Space Informatics Lab at sil.uc.edu/cms. to Partner with Him and Build more Starbucks Stores,” CNBC.com
(November 10, 2018): cnbc.com/2018/11/09/how-magic-johnson-got-
Visualized data, entirely licensed under the Creative Commons Attribution 4.0 starbucks-ceo-howard-schultz-to-partner-with-him.html
International License, includes patterns in high-resolution demographic grids
covering the entire conterminous US. At present the site includes two demographic
variables: population density and racial diversity. Currently, grids for 1990, 2000
and 2010 year are available.
Source: A. Dmowska and T.F. Stepinski,
“High Resolution Dasymetric Model of US Demographics with Application to Spatial
Distribution of Racial Diversity,” Applied Geography 53: 417-26
SUMMIT • SUMMER 2020 7
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